UC-NRLF 


SB    37 


'A  *N  ' 


RL24 


PEOPLE'S  BANKS 


BY 


ARTHUR  H.  HAM 


ADDRESS  DELIVERED  BEFORE  THE 
NATIONAL  CONFERENCE  OF  CHARITIES  AND 

CORRECTION 

INDIANAPOLIS,  IND. 

MAY  15,  1916 


DIVISION  OF  REMEDIAL  LOANS 

RUSSELL  SAGE  FOUNDATION 
130  EAST  22ND  STREET,  NEW  YORK  CITY 


AUGUST,  1916 


SOME  PUBLICATIONS  ON  COOPERATIVE  CREDIT 

ISSUED  BY 
RUSSELL  SAGE  FOUNDATION 

No.    5.     Cooperative  Credit.     A  Selected  Bibliography.     Bulle- 
tin   of    Russell    Sage    Foundation    Library,    June, 
1914.     (5  cents.) 
RL  15.     A   Credit   Union   Primer.     By  Arthur   H.  Ham   and 

Leonard  G.  Robinson. 

Contains  a  brief  history  of  cooperative  credit,  a  defini- 
tion of  its  field  in  the  United  States,  an  outline  of 
the  elementary  principles  of  credit  unionism,  to- 
gether with  model  by-laws,  necessary  books  and 
forms,  instructions  for  organizing,  and  the  New 
York  credit  union  law. 

Division  of  Remedial  Loans.    79  p.    1914.     (25  cents.) 
RL  16.     The  Cooperative  People's  Bank.     By  Alphonse  Des- 

jardins. 
The  evolution  of  the  cooperative  bank,  the  Canadian 

system,  its  growth  and  accomplishments. 
Division  of  Remedial  Loans.     42  p.     1914.     (15  cents.) 
RL  19.     Credit  Unions  and  their  Relation  to  Savings  and  Loan 

Associations.     By  Arthur  H.  Ham. 
An  address  delivered  before  the  State  League  of  Sav- 
ings  and   Loan   Associations,    Port   Jervis,    N.    Y., 
June  10,  1915. 
Division  of   Remedial   Loans.     12   p.     1915.     (Single 

copies  free.) 

RL  22.     Determining  Credit.     A  Suggestive  Method  for  Credit 

Committees  of  Credit  Unions.  Devised  by  R.  S.  Hale. 

Division    of    Remedial    Loans.     8    p.     1916.     (Single 

copies  free.) 
RL  23.     The  Object  of  the  Credit  Union.     A  Reply  to  Myron 

T.  Herrick.     By  Arthur  H.  Ham. 

Division  of  Remedial  Loans.  16  p.  1916.  (Single 
copies  free.) 


PEOPLE'S  BANKS 

Among  the  obstacles  that  lie  in  the  path  of  the  modern  pro- 
gram for  the  improvement  of  social  and  living  conditions  in  all 
the  respects  of  health,  efficiency,  material  welfare,  recreation  and 
intellectual  advancement  none  looms  larger  than  these:  (a)  The 
lack  of  thrift  in  American  families,  (b)  the  many  forms  of  waste 
and  exploitation  surrounding  the  purchase  of  necessities,  and  (c) 
the  lack  of  reasonable  credit  by  means  of  which  emergency  needs 
may  be  met.  In  spite  of  its  extravagant  and  wasteful  methods  of 
living  the  family  usually  manages  to  provide  itself  with  the  neces- 
sities of  life  and  it  is  the  call  for  extraordinary  financial  outlay, 
unforeseen  and  unprovided  for  that  marks  the  beginning  of  the 
fall  of  most  families  which  claim  the  attention  of  the  relief  so- 
cieties. 

There  is  a  time-honored  delusion  that  thrift  is  represented  by 
savings  bank  deposits  and  commentators  of  American  unthrift 
are  fond  of  comparing  the  $48  per  capita  average  of  savings 
bank  deposits  in  the  United  States  with  the  larger  average  of 
certain  European  countries.  A  writer  in  a  popular  magazine 
recently,  to  prove  us  a  prodigal  people,  went  so  far  as  to  move 
the  decimal  point  one  place  to  the  left  and  credit  us  with  a  per 
capita  average  deposit  of  only  $4.84.  Such  comparisons  in- 
variably fail  to  include  the  two  billions  and  over  of  individual 
deposits  held  by  trust  companies  and  commercial  banks  and 
$1,300,000,000  deposited  in  the  6,600  building  and  loan  associa- 
tions throughout  the  country.  They  fail  to  take  into  account 
numerous  other  factors,  such  as  the  great  sums  invested  in  small 
securities.  This  is  well  illustrated  by  the  steady  decline  in  recent 
years  of  net  deposits  in  the  New  York  savings  banks  which  is 
attributed  by  well-informed  bankers  not  to  decreased  savings  but 
to  the  growth  of  "investment  intelligence"  which  has  led  many 
people  who  formerly  deposited  their  savings  to  buy  small  partici- 

3 


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pating  mortgage  certificates  and  good  stocks  and  bonds  issued  in 
small  denominations. 

Though  the  average  of  savings  deposits  is  not  a  real  indict- 
ment of  American  thrift  and  foresight  there  is  no  lack  of  evi- 
dence of  unthrift  in  the  wasteful  and  uneconomic  use  of  income 
by  American  families.  Out  of  the  weekly  wage  many  a  family 
can  buy  what  it  has  to  in  the  way  of  necessities  but  it  cannot  so 
apportion  its  expenditures  as  to  permit  buying  in  large  quantities 
and  so  effect  a  saving.  Cheap  amusements,  reading  matter  and 
such  things  are  within  its  reach,  but  the  purchase  of  winter 
clothes  or  household  equipment  often  presents  as  great  a  prob- 
lem as  the  payment  of  hospital  expenses. 

The  device  employed  by  business  to  meet  these  conditions  is 
the  instalment  agency  from  which  the  family  may  procure  cloth- 
ing, furniture,  etc.,  and  pay  for  it  in  small  regular  instalments 
out  of  income.  Unfortunately  this  agency  in  unscrupulous  hands 
has  been  used  not  only  as  a  means  of  enticing  people  to  purchase 
unnecessary  articles  but  also  to  reap  a  profit  far  beyond  a  reason- 
able interest  on  deferred  payments  or  proper  compensation  for 
risk  involved  in  such  credit  transactions — thus  becoming  an 
important  contributing  cause  of  poverty  and  distress. 

Credit  is  founded  on  confidence,  i.  e.,  the  trust  that  the  lender 
has  in  the  reliability  of  the  borrower  and  his  ability  to  meet  his 
obligation  when  due.  Commerce  depends  on  credit,  production 
cannot  go  on  without  it  and  there  are  times  when  the  ability  to 
obtain  a  loan  is  of  the  utmost  advantage  to  a  workingman.  Banks 
are  the  machinery  by  which  credit  is  converted  into  money  but 
the  workingman  turns  to  the  banks  for  temporary  help  only  to 
find  that  their  services  are  not  available  for  him, — that  confidence 
on  which  credit  is  based  comes  from  a  belief  in  the  solvency 
and  efficiency  as  well  as  the  integrity  of  the  borrower.  Char- 
acter, capability  and  capital  are  the  tests  on  which  banking  credit 
depends  and  the  needy  wage  earner,  regardless  of  his  unassail- 
able honesty,  sobriety,  and  industry,  is  insolvent  and  so  cannot 
qualify.  Some  time  ago  the  country  was  startled  by  the  alleged 
statement  of  the  late  J.  P.  Morgan  before  a  congressional  com- 
mittee that  "  Character  is  the  basis  of  credit."  He  was  not  quoted 
quite  correctly.  What  he  said  in  answer  to  the  question  "Is  not 
commercial  credit  based  primarily  on  money  or  property?"  was, 

4 


"  No,  the  first  thing  is  character."  He  enunciated  no  new  principle 
in  banking.  He  merely  neglected  to  say  that  the  other  co-essen- 
tials of  credit  are  capability  and  capital. 

The  savings  bank  cannot  loan  to  the  wage  earner  because  of 
legal  restrictions  limiting  it  to  investment  in  approved  bonds  and 
real  estate  mortgages.  The  commercial  bank  will  not  loan  to  him 
because  he  cannot  satisfy  its  requirements  as  to  security  and, 
besides,  his  loan  is  too  small  to  bother  with.  Our  vast  array  of 
savings  institutions  mobilizes  the  savings  of  the  people,  not  for 
use  by  the  classes  that  assisted  in  the  accumulation,  but  by  large 
commercial  and  industrial  borrowers.  They  are  "People's  Banks" 
at  the  receiving  teller's  window  but  something  else  at  the  loans 
and  discounts  counter. 

Overtaken  by  illness  in  his  family  or  other  emergency,  facing 
the  danger  of  losing  an  insurance  policy  through  lapse  in  pre- 
mium, of  losing  his  equity  in  his  home  through  arrearages  in 
taxes  or  of  losing  his  household  goods  through  inability  to  meet 
the  extortionate  demands  of  the  instalment  shark,  the  working 
man  turns  to  the  agency  always  advertising  its  readiness  to  come 
to  the  assistance  of  unfortunates — the  professional  money  lender, 
commonly  referred  to  by  those  who  know  his  characteristics  as 
the  "loan  shark."  From  this  good  angel  the  needy  man  may 
obtain  a  loan  on  security  of  pledge  or  mortgage  of  his  personal 
property,  assignment  of  wages,  or  the  endorsement  of  a  friend,  at 
an  interest  charge  of  from  100%  per  annum  upwards  and  thereby 
begins  a  chain  of  transactions  which,  except  in  rare  instances, 
leads  to  greatly  increased  distress  and  often  to  theft,  family 
desertion  and  suicide. 

Recognizing  the  need  for  and  the  legitimate  uses  of  credit  in 
the  economy  of  the  wage  earner  and  the  parasitic  character  of 
the  loan  shark  who  fattens  upon  his  need,  there  came  into  exist- 
ence the  remedial  loan  agency  formed  by  public-spirited  men  not 
primarily  for  gain  but  for  the  purpose  of  demonstrating  that  the 
small  loan  business  which  has  always  been  considered  extra- 
hazardous  is  not  in  reality  fraught  with  unusual  risk  when 
properly  conducted  and  that  under  methods  based  on  higher 
standards  of  business  morality  than  the  loan  shark  employs,  the 
business  can  be  successfully  and  profitably  conducted  at  rates 
very  much  lower  than  those  which  have  long  prevailed.  In  this 

5 


respect  the  remedial  loan  societies,  from  the  great  Provident 
Loan  Society  of  New  York  to  the  chattel  mortgage  associations 
employing  but  a  few  thousands  of  capital,  have  been  conspicu- 
ously successful.  They  have  not  sought  to  monopolize  the  small 
loan  business  but  their  competition  has  been  sufficient  to  force 
professional  money-lenders  in  a  great  many  cities  to  reduce  their 
charges  to  a  reasonable  level.  Their  influence  has  assisted  in  se- 
curing the  passage  of  adequate  legislation  in  a  large  number  of 
states  and  their  example  has  attracted  reputable  capital  into  the 
business,  without  thought  of  philanthropy,  but  in  the  belief  that 
it  offers  a  reasonably  safe  and  profitable  investment  even  when 
conducted  within  legitimate  bounds. 

Not  a  few  money-lenders  who  strenuously  opposed  the  passage 
of  remedial  legislation,  having  tasted  the  joys  of  conducting  a 
legal  business  encouraged  by  the  state  and  yielding  a  fair  profit, 
have  recently  formed  themselves  into  associations  which  are  co- 
operating with  state  officials  in  detecting  and  convicting  violators 
of  these  laws  and  are  even  employing  attorneys  to  assist  the 
authorities  in  upholding  the  constitutionality  of  the  very  laws 
they  sought  to  defeat.  This  is  one  of  the  most  gratifying  and 
significant  results  of  the  remedial  loan  movement. 

In  spite  of  the  great  improvement  that  has  taken  place  within 
the  last  few  years  in  the  conditions  under  which  the  small  loan 
business  is  conducted,  the  fact  remains  that  none  of  these 
agencies,  philanthropic  or  otherwise,  attempts  to  loan  to  the 
workingman  at  a  cost  approximating  the  rate  on  commercial 
loans  even  though  some  of  the  profit-making  agencies  in  this  field 
attempt  to  create  such  an  impression.  The  lowest  cost  to  the 
borrower  is  12%  per  annum  and  in  the  majority  of  cases  it 
approximates  24%  per  annum.  Even  at  this  rate  many  such 
agencies  find  it  is  not  easy  to  return  a  fair  profit  on  the  invest- 
ment after  operating  costs  have  been  met.  The  point  should 
also  be  emphasized  that  none  of  these  agencies  finds  it  possible 
to  loan  on  the  sole  security  of  the  character  of  the  borrower. 
They  insist  that  their  estimate  of  his  honesty  and  efficiency  be 
backed  up  by  guarantees  in  the  form  of  material  security  or  the 
endorsement  of  other  individuals  who  appear  to  be  solvent.  The 
question  is,  can  the  honesty,  trustworthiness,  sobriety  and  indus- 
try of  an  individual  serve  as  a  sufficient  guarantee  for  the  repay- 

6 


ment  of  a  loan  without  material  security  or  the  endorsement  of 
an  employer  or  creditor  and  can  credit  be  obtained  by  such  a 
man  on  this  basis  at  a  rate  of  charge  approximating  that  prevail- 
ing on  commercial  loans? 

There  is  one  type  of  institution  and  only  one  that  can  advance 
money  to  the  workingman  on  security  of  his  honesty  and  in- 
dustry and  that  is  the  institution  which  is  so  close  to  him  as  to 
be  able  to  determine  his  reliability  with  fair  accuracy — his  char- 
acter becomes  the  basis  of  credit  only  when  it  can  be  appraised. 
Such  an  appraisal  involves  an  intimate  knowledge  of  his  personal 
habits  and  of  his  financial  and  domestic  situation.  No  capital- 
istic agency  can  obtain  this  knowledge, — it  is  obtainable  only  by 
a  man's  immediate  associates.  In  other  words,  character  credit 
for  workingmen  can  come  only  through  mutual  protective  action 
by  workingmen,  that  is,  through  co-operation. 

Co-operation  comes  most  easily  to  men  in  times  of  great  diffi- 
culty. As  the  Rochdale  pioneers  united  in  a  plan  of  distributive 
co-operation;  as  the  German  peasants,  workmen  and  tradesmen 
united  in  co-operative  credit  associations  as  a  means  of  obtaining 
credit  which  as  individuals  they  could  not  obtain ;  as  the  peasants 
of  Ireland  united  to  free  themselves  from  the  Gombeen  man,  so 
also  in  this  country  are  workingmen  beginning  to  unite  as  a 
means  of  freeing  themselves  from  the  grip  of  agencies  which 
exploit  their  necessities,  and  as  a  means  of  obtaining  credit  on  a 
reasonable  basis  which  now  they  can  obtain,  if  at  all,  only  at  a 
high  price.  This  form  of  co-operation  which  is  known  in  Germany 
as  the  Co-operative  Credit  Association,  in  Ireland  as  the  Credit 
Society,  in  Italy  and  Canada  as  the  People's  Bank,  is  known  in 
this  country  as  the  Credit  Union. 

The  history  of  modern  credit  contains  no  more  striking  phe- 
nomena than  the  wonderful  development  of  the  credit  union  in 
Europe  in  the  last  50  years  and  its  tardiness  in  developing  here. 
The  number  of  credit  unions  in  existence  throughout  the  world 
at  the  outbreak  of  the  European  war  was  more  than  65,000  with 
a  membership  of  15,000,000  people  and  an  annual  business 
amounting  to  $7,000,000,000.  The  movement  which  originated 
in  Germany  in  1850  has  now  spread  to  practically  every  European 
country  and  even  to  India,  Japan  and  Egypt.  Russia,  which  in 
1904  had  378  of  these  unions,  now  has  14,000.  The  number  in 

7 


Germany  in  1914  was  over  18,000,  making  loans  to  members  in 
one  year  of  over  $1,500,000,000.  In  1909,  when  the  first  credit 
union  law  in  the  United  States  was  enacted  in  Massachusetts, 
there  were  40,000  unions  operating  abroad  with  an  annual  turn- 
over of  $4,000,000,000.  Japan  alone  had  nearly  2,000  unions  in 
1909  and  the  little  country  of  Roumania  had  2,500  unions  with  a 
membership  of  350,000  or  35%  of  the  total  population  of  the 
country,  but  in  that  year  there  was  not  a  single  co-operative 
credit  union,  rural  or  urban,  in  the  United  States. 

Now  let  us  see  just  what  a  credit  union  is.  It  is  an  associa- 
tion of  persons,  united  by  some  common  bond  or  community  of 
interest,  joined  together  in  a  co-operative  endeavor  for  the  follow- 
ing purposes: 

1.  To  encourage  thrift  by  providing  a  safe,  convenient  and  at- 
tractive medium  for  the  investment  of  the  savings  of  its  members. 

2.  To  promote  industry,  eliminate  usury  and  increase  the  pur- 
chasing power  of  its  members  by  enabling  them  to  borrow  for 
productive  or  other  beneficial  purposes  at  a  reasonable  cost. 

3.  To  train  its  members  in  business  methods  and  self-govern- 
ment and  bring  them  to  a  full  realization  of  the  value  of  co-opera- 
tion. 

Under  the  law  of  New  York — and  this  is  typical  of  the  credit 
union  laws  now  in  effect  in  eight  states  in  the  Union — seven  or 
more  persons  may  combine  to  organize  a  credit  union  in  any  city, 
town  or  rural  community.  The  basis  of  membership  is  good 
moral  character — reputation  for  honesty,  sobriety  and  industry — 
and  identification  with  the  basic  unit  upon  which  the  credit  union 
is  founded,  such  as  employment,  neighborhood  or  fraternal  asso- 
ciation, membership  in  the  trade  union,  church  club,  etc.  Deal- 
ings are  had  with  members  only. 

The  funds  of  the  credit  union  consist  of  the  sums  paid  in  by 
members  upon  shares  or  on  deposit  and  of  borrowed  money. 
Shares  are  issued  in  small  denominations — usually  $5 — and  may 
be  paid  for  in  regular  weekly  or  monthly  instalments.  Each 
member  is  required  to  subscribe  for  at  least  one  share  and  is 
encouraged  to  subscribe  for  as  many  shares  as  he  can  afford. 
Payments  upon  shares  are  savings  for  distant  expenditures  while 
deposits  are  savings  for  more  imminent  needs.  It  is  customary 
to  accept  even  trifling  sums  on  deposit  or  in  payment  of  shares 

8 


in  order  to  encourage  saving  among  the  humblest  members. 
Interest  is  allowed  on  deposits  at,  or  slightly  above,  the  savings 
bank  rate.  Dividends  paid  upon  shares  vary.  Most  credit 
unions  that  have  attained  full  headway  pay  a  dividend  rate  of 
from  4  to  6%  per  annum. 

In  an  ordinary  joint-stock  company  the  shareholder's  money 
is  the  main  object  considered  but  in  a  credit  union  the  person  of 
the  shareholder  is  of  much  greater  importance;  that  is,  it  is  an 
association  of  members  and  not  of  capital,  and  for  that  reason 
each  member  has  one  vote  regardless  of  the  number  of  shares 
he  may  hold.  The  one-man  one-vote  principle  is  fundamental  to 
democracy  of  control.  All  members  share  equally  in  privileges 
and  ratably  in  profits. 

The  active  management  of  the  credit  union  is  delegated  by 
the  general  meeting  of  the  members  to  a  board  of  directors,  a 
credit  committee  and  a  supervisory  committee,  the  members  of 
which  serve  without  pay.  The  directors  have  the  general  man- 
agement of  the  affairs  of  the  union.  They  act  upon  applications 
for  membership,  determine  the  rate  of  interest  upon  loans  and 
deposits,  and  declare  dividends.  The  credit  committee  has 
charge  of  the  granting  of  loans  to  members  and  fixes  the  terms  of 
repayment.  The  supervisory  committee  audits  the  books  and 
accounts  and  supervises  the  acts  of  the  directors,  officers  and 
credit  committee. 

A  loan  that  is  of  no  benefit  to  the  borrower  is  likely  to  be  an 
unsafe  investment.  Credit  unions,  therefore,  loan  only  for  pro- 
ductive purposes,  and  purposes  that  will  effect  a  saving  or  supply 
an  urgent  need.  Loans  are  commonly  made  for  not  more  than 
one  year  and  are  repaid  in  weekly  or  monthly  instalments  deter- 
mined in  each  instance  by  the  credit  committee  in  conference 
with  the  borrower.  Ordinarily,  loans  are  secured  by  the  promis- 
sory note  of  the  borrower  with  one  or  more  endorsements  of 
fellow-members,  but  on  small  loans  endorsements  are  not  usually 
required.  It  is  the  character  of  the  borrower  and  his  endorsers, 
appraised  by  the  board  of  directors  when  the  members  are  ad- 
mitted to  the  credit  union  and  again  appraised  by  the  credit  com- 
mittee in  passing  upon  applications  for  loans,  that  determines 
the  amount  of  credit  extended.  The  borrower's  solvency  which 


plays  such  a  large  part  in  commercial  credit  plays  but  a  small 
part  in  the  determination  of  credit  by  a  credit  union. 

In  a  joint  stock  bank  the  shareholders  and  constituents  are 
mostly  different  people — a  condition  which  keeps  distinct  the 
interests  of  the  buyers  and  sellers  of  credit.  In  a  credit  union 
the  interests  of  borrowers  and  lenders  are  identical.  The  very 
members  who  pay  interest  on  loans  are  receiving  dividends  on 
their  shares.  This  community  of  interest  enables  the  credit 
union  to  loan  with  safety  upon  character  alone,  for  the  moral 
responsibility  of  repayment  is  great  when  a  man  knows  that  by 
violating  his  obligation  he  not  only  withholds  the  money  of  a 
fellow- worker  or  associate,  but  invites  social  ostracism.  The 
mutual  responsibility  of  members  and  their  self-interest  causes 
such  supervision  over  loans  as  to  make  the  possibility  of  loss 
remote.  This  has  been  the  uniform  experience.  What  few 
losses  have  occurred  have  been  due  to  carelessness  and  neglect  of 
basic  principles.  The  official  reports  show  that  in  the  16  years 
from  1895  to  1910  there  were  19  failures  out  of  a  total  of  15,000 
credit  unions  in  Germany  and  in  no  single  case  did  a  depositor 
lose  a  cent.  For  each  one  of  these  failures  there  were  55  failures 
among  commercial  banks. 

The  credit  union  avoids  any  expensive  investigation  of  bor- 
rowers. Overhead  costs  are  also  reduced  by  gratuitous  service 
on  the  part  of  managing  committees  and  loans  can  be  made  at  an 
interest  rate  which  a  commercial  loaning  agency  in  this  field 
could  never  approach.  The  New  York  credit  union  law  allows 
a  maximum  interest  charge  of  i%  per  month.  In  the  beginning 
many  credit  unions  charge  the  maximum  rate  but  in  practice 
both  here  and  abroad  the  rate  decreases  as  experience  is  gained 
until  it  approximates  that  prevailing  on  commercial  loans. 

Out  of  the  net  profits  each  year  a  certain  sum  usually  fixed  by 
the  law  is  set  aside  to  a  guaranty  fund  which  provides  protec- 
tion for  shareholders,  depositors  and  other  creditors  in  event  of 
loss.  The  fund  is  the  property  of  the  credit  union  and  no  share 
in  it  may  be  claimed  by  any  member  except  upon  the  dissolution 
of  the  union.  It  serves  as  additional  loanable  capital,  making 
possible  a  reduction  of  interest  on  loans  without  effecting  a  reduc- 
tion in  the  interest  rate  paid  on  deposits  or  dividends  declared 
upon  shares. 

10 


The  credit  union  came  to  the  United  States  by  way  of  Canada, 
where  there  are  now  over  200  credit  unions  or  people's  banks  in 
successful  operation  in  the  Province  of  Quebec.  The  genesis  of 
the  Massachusetts  credit  union  law  of  1909,  the  first  enacted  here, 
was  the  successful  work  of  these  Canadian  associations  under  the 
leadership  of  M.  Alphonse  Desjardins.  There  are  now  some  60 
credit  unions  in  operation  in  Massachusetts.  A  realization  of  the 
need  for  a  central  body  to  extend  the  system  resulted  in  the 
organization  of  the  Massachusetts  Credit  Union  formed  by  a 
group  of  philanthropic  men  and  now  including  in  its  membership 
the  representatives  of  a  number  of  the  local  credit  unions.  It 
seeks  to  secure  harmony  of  action,  methods  and  accounting  and 
by  arranging  frequent  conferences  of  officials  and  committees  of 
unions  throughout  the  state  offers  an  opportunity  for  the  inter- 
change of  ideas  and  experiences  which  is  having  a  most  beneficial 
effect  upon  the  movement  in  Massachusetts. 

Seventeen  credit  unions  are  operating  in  New  York  City 
under  the  law  of  1915,  in  addition  to  eight  unions  formed  by 
Jewish  farmers.  Among  the  credit  unions  in  New  York  City  are 
those  formed  by  the  employees  of  John  Wanamaker,  the  Mutual 
Life  Insurance  Co.,  the  Equitable  Life  Assurance  Society,  the 
American  Can  Co.,  and  the  Postal  Telegraph  Co.  Others  are 
operating  in  groups  joined  together  by  neighborhood  and  fra- 
ternal association.  Steps  are  being  taken  to  organize  a  series  of 
credit  unions  among  the  army  of  employees  of  the  city  of  New 
York.  This  is  testimony  to  the  esteem  in  which  this  form  of  co- 
operative financial  association  has  already  come  to  be  held. 

Savings  banks,  postal  savings  offices  and  interest  departments 
of  trust  companies  receive  and  safeguard  the  deposits  of  people 
who  are  sufficiently  inclined  to  thrift  to  journey  to  these  insti- 
tutions, which  are  not  conveniently  located  for  all,  and  there 
stand  in  line  awaiting  their  turn  to  deposit.  Many  a  man  in 
order  to  become  thrifty  requires  a  savings  agency  at  his  elbow, 
which  not  only  makes  it  convenient  for  him  to  deposit  but  intro- 
duces the  effective  element  of  compulsion  contained  in  the  insur- 
ance policy  and  instalment  purchase  contract.  Once  a  man  sub- 
scribes to  an  instalment  share  in  a  credit  union  he  is  not  only 
constantly  reminded  of  his  intention  to  save  but  is  required  to 
live  up  to  his  agreement  unless  he  has  some  excellent  reason  for 

II 


not  doing  so.  An  indication  of  the  possibilities  of  the  credit 
union  in  enticing  members  to  save  is  contained  in  the  statement, 
in  the  last  annual  report  of  the  Superintendent  of  Banks  of  New 
York,  that  a  single  credit  union  in  one  year's  time  had  accumu- 
lated assets  of  $36,000.  There  is  no  doubt  that  the  savings  banks 
had  failed  to  reach  the  majority  of  the  men  who  accumulated 
this  amount  of  capital. 

Consider  what  it  means  to  a  workingman  to  be  able  to  borrow 
from  a  credit  union  in  order  to  buy  for  cash  certain  necessaries 
of  life  for  which  he  has  been  accustomed  to  pay  an  unconscion- 
able profit  through  buying  on  the  instalment  plan ! 

Consider  the  increased  purchasing  power  of  the  wages  of 
members  joined  together  in  a  co-operative  purchasing  associa- 
tion, buying  in  large  quantities  at  wholesale  such  supplies  as  coal, 
for  example,  for  retail  sale  to  members,  the  purchasing  associa- 
tion being  financed  by  the  credit  union!  These  are  matters 
clearly  within  the  scope  of  a  credit  union. 

Consider  the  increased  efficiency  and  improved  material  con- 
dition of  the  man  who  has  been  paying  ruinous  interest  rates  to 
a  loan  shark  for  a  long  time  and  is  able  to  free  himself  through 
the  agency  of  the  credit  union ! 

Large  numbers  of  men  in  the  employ  of  the  Postal  Telegraph 
Co.  had  for  years  been  paying  tribute  to  the  loan  sharks,  who 
were  not  only  always  on  hand  on  pay  day  to  collect  their  toll — 
which  did  not  reduce  the  debt — but  followed  their  victims  who 
sought  to  escape  by  going  to  other  cities,  by  filing  claims  against 
their  wages,  making  their  lives  miserable  and  often  bringing  about 
their  dismissal  from  the  service.  Many  operators  were  driven  to 
do  things  they  never  would  have  thought  of  doing  had  they  been 
free  from  this  curse  and  they  became  roving,  unstable  workmen. 
Afraid  to  walk  in  and  out  of  the  front  doors  of  the  offices 
they  dodged  through  rear  entrances,  drew  their  faces  into 
all  sorts  of  shapes  so  that  they  could  not  be  recognized, — even 
changed  their  names  when  asking  for  employment  after  being 
dismissed.  With  the  idea  of  escape  from  their  persecutors  many 
telegraphers  requested  the  trade  journal — the  Telephone  and 
Telegraph  Age — to  keep  out  of  its  columns  any  references  to  their 
movements  from  place  to  place.  These  requests  were  filed  and 
came  to  be  known  as  the  ''Keep-Out  List."  According  to  the 

12 


testimony  of  the  general  manager  of  the  company  this  condition 
has  been  entirely  changed  through  the  agency  of  the  credit  union. 
The  filing  of  a  claim  against  a  man's  wages  by  a  money-lender  is 
now  an  unusual  thing.  The  "Keep-Out  List"  no  longer  exists, 
and  many  an  operator  who  struggled  for  years  with  the  loan  shark 
now  walks  with  head  erect  in  the  knowledge  that  he  has  a  sav- 
ings account  in  the  credit  union  and  the  privilege  of  borrowing 
therefrom  at  a  reasonable  rate  for  any  legitimate  purpose.  The 
benefit  which  the  company  has  derived  from  this  changed  condi- 
tion is  apparent.  What  it  means  to  the  operator  and  his  family 
in  terms  of  increased  earning  power,  contentment  and  improved 
living  conditions  is  no  less  obvious. 

Credit  unions  are  simply  associations  by  means  of  which  men 
combine  to  establish  local,  self-governing  institutions  of  credit  to 
meet  their  requirements,  relying  on  their  own  efforts  and  initia- 
tive to  work  out  their  own  salvation.  Their  success  depends  upon 
the  character  of  their  members — not  upon  their  financial  condi- 
tion but  upon  their  personal  worth.  Each  member  must  feel  the 
necessity  for  the  organization,  that  he  is  a  part  of  it,  that  it  is 
his,  developed  and  managed  to  protect  and  promote  his  interests 
— a  real  financial  democracy  of  mutual  assistance  and  mutual 
confidence  in  which  each  member  is  forced  to  make  of  his  own 
efforts,  his  own  character  and  his  own  habits  security  worth 
lending  upon.  The  credit  union  not  only  manufactures  credit 
out  of  the  raw  material  of  character  but  it  also  manufactures 
capital  synthetically  just  as  nitrate  is  being  reclaimed  from  the 
air — making  the  capital  so  created  available  for  the  legitimate 
borrowing  needs  of  those  who  assisted  in  its  accumulation. 

It  is  essentially  a  social  movement  which  teaches  the  true  uses 
of  credit  and  inculcates  the  principles  of  honesty  and  punctuality 
in  meeting  obligations.  It  encourages  thrift.  It  increases  pur- 
chasing power.  It  eliminates  usury  and  waste.  It  teaches  the 
real  power  of  co-operation. 


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